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Colombia

Colombia

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In Colombia, a foreign individual is generally liable for tax on income and property sourced or situated in Colombia, only to the extent that the individual is not considered as resident for tax purposes (remain in the country less than 183 days). For foreign taxpayers who are resident for fiscal matters, tax is levied on net income and applied at progressive rates. For foreign non-resident taxpayers, income tax is levied on net worldwide income at a flat rate of 33 percent. Net income is calculated by subtracting allowable deductions from total assessable income.

Key message

Business travelers are likely to be taxed on employment income earned during their time working in Colombia.

Income tax

Liability for income tax

A person’s liability to Colombian tax is determined by the source of income. The tax rates and the taxable income are dependent on whether a person is a resident for fiscal matters of Colombia, or a non-resident.

Resident

Colombian law sets out that a person is considered resident for fiscal matters in Colombia if the individual remains in the country, whether or not the stay is continuous, for a period of more than 183 days during a 12 month period or if, within the fiscal year, the 183 days are completed.

A resident also includes a Colombian national whose family, assets or business remains in the country even though the Colombian national resides in a foreign country.

Non-Resident

A person who does not meet the criteria of a resident is considered to be a non-resident for fiscal matters.

A person who spends less than 183 days in Colombia during a fiscal year is therefore a non-resident for fiscal matters.

A person who is resident for fiscal matters in the country is liable for tax in Colombia on worldwide income.

Taxpayers who are considered non-resident for fiscal matters, are liable for tax in Colombia only on income derived directly or indirectly from a Colombian source.

Definition of source

Employment income is generally treated as Colombian-sourced compensation where the individual performs the services while physically located in Colombia.

Tax trigger points

There is no threshold/minimum number of days that exempts the employee from the requirements to file and pay tax in Colombia.

To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there may be no tax liability.

For FY 2016, residents are not taxable on the first 32,430,770 Colombian pesos (COP) of taxable income.

Types of taxable income

All remuneration, fees, and allowances paid under an employment contract or as an independent worker are treated as taxable income to the extent they are received in return for services provided in Colombia. For this reason, all payments received in cash or in kind by an employee are taxable, regardless of where the compensation is paid.

Taxable income

Issues to take into account

Colombian national non-resident for fiscal matters

Rents and occasional gains from a national source are taxable. In the case of residents, taxable income also includes rents and occasional gains from a foreign source.

Wages paid in Colombia for work performed outside the country are not considered to be income of national source. Therefore, non-residents would not be taxed on this income, nor would this income be subject to withholding tax. It is important to note that the Colombian entity should have the corresponding supports to demonstrate that the payments were made on behalf of a foreign employer.

Foreign nationals on assignment in Colombia

Rents and occasional gains from a national source are taxable. In the case of residents, taxable income also includes rents and occasional gains from a foreign source.

Where an individual is paid overseas for services performed in Colombia, the amount of income that is considered as Colombian source income is calculated based on the number of days the expatriate provides the service in Colombia.

During the period prior of the 184 days remained in Colombia, any income will be subject to a withholding tax at 33 percent. It is important to bear in mind that if payments made abroad are recharged to Colombian entity, the Colombian entity should report this as labor payment and practice the corresponding withholding.

Regardless of where payment is made for services provided in Colombia, the income will be taxable.

Source: KPMG in Colombia, 2015

Tax rates

The net income of a person resident in Colombia is liable for tax at progressive rates from 0 percent to 33 percent. Non-residents are liable for income tax at a flat rate of 33 percent. This is currently the maximum tax rate for residents and is applied on income earned over COP121,987,300 for the 2016 tax year.

Social security

Social security liability Employer and employee

Any person employed in Colombia must make contributions to the social security system. The system consists of a general contribution scheme and a special contribution scheme. Social security contributions are calculated based on an employee’s earnings.

A voluntary regime is also available to self-employed and unemployed individuals. Participants in this regime are subject to a special quota.

Paid by

Type of insurance

Employer percent

Employee percent

Total percent

Pension plan

12.0%

44.0%

16.0%

Medical plan

8.5%

4.0%

12.5%

Family welfare fund

9.0%

0.0%

9.0%

Total percent

29.5%

8.0%

37.5%

Source: KPMG in Colombia, 2015

The social security system provides benefits to the participant or the participant’s dependents for events such as occupational accidents, sickness, retirement, pension, and death.

The employer must make the following social security contributions for 2015.

pension plan: 12 percent of monthly payroll

medical plan: 8.5 percent of monthly payroll

family welfare fund: 9 percent of monthly payroll. It is important to clarify that employers subject to the income tax for equity CREE (for its acronym in Spanish), are not subject to this contribution for the employees whose monthly salary is lower than 10 monthly minimum wages (COP 6.894.540)

It is important to consider whether the employee is contributing to a pension fund or health plan in the their home country that covers the contingencies the employee could suffer during their stay in Colombia, in which case participation in the pension scheme in Colombia is voluntary. If the employee has a labor agreement with a Colombian company, however, participation in the health plan is obligatory.

When an employee earns a salary between 4 and 15 times the minimum legal monthly salary (SMLM for 2016 is COP 689.454), the employee must contribute an additional 1 percent to the pension fund. Likewise, employees earning 16 SMLMs or more must make additional contributions as follows:

SMLM

Additional percentage

Total contribution percentage

16–17

0.2%

17.2%

17–18

0.2%

17.4%

18–19

0.2%

17.6%

19–20

0.2%

17.8%

20 or more

0.2%

18.0%

Source: KPMG in Colombia, 2015

The employee should assume these payments.

Compliance obligations

Employee compliance obligations

The filing date for tax returns is generally between August and October, after the end of the tax year (31 December). The tax authorities publish a schedule each year setting out the filing dates. The filing date for an individual is based on the last two digits of the individual’s tax identification number (NIT). Foreign nationals are required to obtain an NIT to be used in all their tax affairs.

In general, an individual who have received income after 31 December in any tax year must submit a tax return if the criteria to be liable is met. Failure to do so will result in a monthly penalty, payable in arrears, equal to 5 percent (for each month) of the outstanding tax, capped at 100 percent of the amount payable.

Taxpayers who fulfill all the following conditions are liable to submit a tax return for FY2016.

All inviduals whose income is higher than COP 41.654.200, or whose gross equity is higher than COP 133.888.500, within the respective tax year.

Credit card purchases or whole purchases during the taxable year that exceed COP 83.308.400.

The accumulated balance on banking accounts, savings, deposits or financial investments, during the taxable year that are higher than COP 133.888.500.

Foreigners who are not resident for fiscal matters who will have to pay the full current tax rate (33% for FY2016). It is important to mention that if a foreign individual was subject to a withholding of 33%, would not be liable to file the Colombian income tax return.

Any outstanding tax must be paid at the time of filing the return. Failure to pay tax when due will result in a penalty and interest will accrue daily on any unpaid taxes at a rate of approximately 29.52 percent per annum (until 31 March 2016, for liabilities associated to FY2015). On 1 April 2016, the government will announce the applicable rate for the next quarter.

Employer reporting and withholding requirements

Employers are obliged to withhold tax from expatriates’ earnings every month as follows:

If the expatriate is a non-resident, 33 percent of total monthly compensation should be withheld.

If the expatriate is a resident he will be liable for tax at the progressive rates from 0 percent to 33 percent in accordance with the table determined by law.

Income that is contributed to a voluntary pension fund in Colombia or to a savings account destined to acquire real estate is considered to be non-taxable income and is excluded from the withholding tax base, providing the total of these contributions and the obligatory contributions do not exceed 30 percent of income, and limited to an annual cap of COP113,061,000 (approximately USD33,200). Those contributions that are withdrawn before a minimum term of 10 years will be included, however, as income in the year of withdrawal, with the exception of withdrawals made to acquire real estate.

Any tax withheld will be taken into account in the calculation of the final tax liability.

In addition, a deduction from salary is available for interest paid on loans taken out for the home. This, therefore, reduces the income tax and withholding tax bases. It is also important to take into account that 25 percent of labor payments are exempt from income tax, up to a monthly maximum of COP7,140,120 (approximately USD2,100) for the year 2016 and COP6,786,960 (approximately USD2,000) for the year 2015.

Immigration

Work permit/visa requirements

A visa must be obtained before an individual can enter Colombia. The type of visa required will depend on the purpose of the individual’s entry into Colombia.

Other Issues

Double taxation treaties

In addition to Colombia’s domestic tax regulation, which provides relief for double taxation by giving a tax credit for taxes paid abroad for foreign-sourced income within the limits stated by the law, Colombia has entered into tax treaties to prevent double taxation with Spain, Chile, Switzerland, Mexico, Canada and the countries of the Andean community (Peru, Bolivia, and Ecuador). Colombia is negotiating treaties with, Europe, Korea, and Turkey, among others.

Wealth tax

It is important to bear in mind that the wealth tax will apply to residents and non-residents for tax purposes and it was caused at January 1, 2015. The difference between residents and non- tax residents will be the information to be included, since tax residents will have to include the equity owned in Colombia and abroad and non-tax residents will only have to include the equity owned in Colombia.

The wealth tax will apply for individuals whose net equity is higher than COP 1.000 MM at January 1, 2015. This equity is calculated by including all the value at January 1st of the assets owned (real state, investments, vehicles, financial products, accounts, etc.) and subtracting the liabilities and debts.

In this regard, it should be noted that the net equity is not the taxable base. The taxable base is calculated taking the net equity and subtracting the value of the home of dwelling (up to USD 10.000 approx.) and the “effective equity value” (value of the asset multiplied by the percentage obtained after dividing the net equity by the gross equity) of stocks of Colombian entities.

Now, foreign individuals who are considered as tax residents and have reside in Colombia for less than 5 years are able to subtract the net amount of the assets owned abroad of the taxable base.

Permanent establishment implications

The concept of permanent establishment (PE) for individuals is defined as follows: “It also deemed that there is a permanent establishment in the country, when a person, other than an independent agent acting on behalf of a company foreign, has or exercises habitually powers in the country to conclude agreements or contracts that are binding on the company.

It is considered that such foreign company has a permanent establishment in the country with respect of any activities which that person undertakes for the foreign enterprise, unless the activities of such person are limited to those mentioned in the second paragraph of this article”.

Indirect taxes

The standard rate of value-added tax (VAT) is 16 percent.

VAT is due on the sale of moveable goods and the provision of services within Colombian territory, except those expressly excluded. The importation of moveable goods is also subject to VAT, except where expressly excluded. VAT is not applicable, however, to the sale of fixed assets.

Generally, services are assumed to be provided where the head office is situated, except in the following circumstances:

Telecommunication services are assumed to be provided where the beneficiary’s head office is located.

Building services are assumed to be provided where the building is located.

Services of a cultural and artistic nature, loading, unloading, trans-shipment, and storage services are assumed to be provided in the place where the service is materially carried out.

Where services are executed abroad but the users or consignees are located in Colombia, the services are assumed to be provided in Colombia. Consequently, the services are subject to VAT (i.e. licenses and authorizations for the use and exploitation of incorporeal or intangible assets; professional consulting, advisory, and audit services; rental of corporate movable assets; translation, correction, or text composition services; insurance, reinsurance, and coinsurance services; services carried out in respect of moveable corporate assets; satellite connection or access services; and satellite television service received in Colombia).

VAT is also applicable to the circulation, sale, and operation of games of chance (i.e. gambling) with the exception of lottery games.

Some transactions are deemed to constitute a sale, such as gifts of property and private use of business assets.

There are two VAT regimes in Colombia, a common regime and a simplified regime. Individuals and businesses that make VAT taxable transactions must register in the correct regime in accordance with the requirements stated below.

The simplified regime is relevant to individuals who are merchants or service providers as long as they comply with the following requirements for tax year 2014:

Gross income for the previous year must be less than COP109,723,000.

They must not have more than one establishment, office, bureau, shop, or stand in which the activity is carried out.

The activities in the establishment, office, bureau, shop, or stand must not include a franchise, concessions, royalties, or any kind of exploitation of intangible assets.

They must not be users of customs.

Agreements for the sale of goods or for the provision of services should not exceed COP88,575,000 for the previous year, nor COP90,493,000 for the current year.

Amounts deposited in banks or financial investments during the previous year should not exceed COP123,683,000, and COP127,256,000 for the current year.

The common regime is relevant to companies and individuals who do not fulfill the requirements for the simplified regime.

As an exception, overseas companies providing services that are subject to VAT in Colombia are not required to register for VAT. In these situations, the Colombian party should withhold 100 percent of the VAT applicable to the specific activity.

Transfer pricing

Colombia has a transfer pricing regime based upon the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines. A transfer pricing issue may arise where an employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. The issue would also depend on the nature and complexity of the services being performed.

In Colombia it is possible to negotiate advance pricing agreements with the local tax authority.

Exchange control

The flow of currency into and out of Colombia may be subject to the required use of authorized exchange markets. It is important to bear in mind that payments should be done in Colombian Pesos between residents for exchange purposes (remain in Colombia for more than 6 months), otherwise penalties may apply.

Non-deductible costs for assignees

Non-deductible costs for assignees include contributions made by an employer to non-Colombian pension funds.